Welcome to the 7 new people who joined the onchain letters community since Sunday!
I'm thankful for all 851 of you and I hope everyone is having a great start to the week 🔥
If you're enjoying my writing, please share Onchain Letters with your friends in Crypto and join the /onchainletters channel on Farcaster 🤝
Guest Post
Today's deep dive is written by one of my internet friends, six!
For those of you that have been following Onchain Letters since the start, you probably remember my first ever letter was to him.
Earlier this week he mentioned to me that he was writing a post on a new trend he's been noticing in the crypto space.
We decided it would be a fun idea for him to send out the post on Onchain Letters - I'm excited for all of you to read it below.
If you haven't already, make sure to check out his channel on Farcaster /six, it's easily one of my favorites!
A letter to Emerging Microeconomies
Over the past several months, I’ve noticed a shift in the way capital is flowing through crypto, specifically enabled by new products within and around the Farcaster ecosystem. I haven’t been able to clearly articulate it, until I recently saw this pair of casts by androidsixteen, and it started to make more sense.
There is one underlying story here, which is: when you tie a social graph to a financial ledger like a blockchain, then you start to establish new economies, where the flow of capital is more closely tied to social relationships (aka, peer to peer).
Existing social networks are already coupled with economic activity. Crypto Twitter was a lossier version of this - people bought NFTs and tokens that they saw their friends talking about or using as PFPs, and connected with fellow tokenholders in Discord channels and Telegram chats. Even on purely web2 networks like Instagram and Tiktok, we see social trends influencing purchases, and tighter e-commerce integrations like TikTok and Instagram in-app shopping. These are similar forms of actions where financial behavior is tied to online relationships.
What Farcaster has done is deepen these implicit social and economic relationships by making them explicit - via a social graph that is a) permissionless to access and b) tied directly to Ethereum (and now Solana) onchain identities and asset ownership.
Today, we’ll examine how tooling built on and around Farcaster has allowed for capital to flow more freely in two specific markets: labor & media.
Labor Markets
Labor has traditionally been a very illiquid market - switching costs of jobs are high, it’s difficult to find the optimal candidates for roles, geography often restricts matching opportunities, and more. The 2010s saw the rise of the web2 gig economy which attempted to solve some of these problems, and it definitely did in some ways. But it still fell short - it’s hard to trust strangers to do a good job, it’s very high friction to use a separate marketplace like Upwork, and people still do work that lack models for proper funding - such as maintaining public tooling or open-source software.
New products have helped address some of these barriers. Some examples of tools in the Farcaster ecosystem that help make labor markets more efficient:
Bountycaster is a product that integrates a bounty marketplace directly into the Farcaster feed. Users can request a service, or offer their own, by simply tagging @bountybot in a cast, alongside a price for the bounty.
What Bountycaster has done is bring the marketplace into the feed itself - the home page of many users’ online experience. If people are already spending their time on the feed, and talking about work-related topics, it makes sense that requests for services should exist on the same feed. This ends up lowering the friction to both creating a bounty (simply post a cast) and finding bounties (just scroll your feed as you would, or you can go to the website if you want as well). Payments in stablecoins or crypto-native assets are also easier when onchain, because it’s as simple as transferring the asset to the user’s connected Ethereum address.
The nature of these transactions occurring within the feed keeps capital circulating throughout the Farcaster network, within a broader social graph.
Rounds
Rounds are a new mechanism for community capital distribution, formed for the Nouns community as an extension of Prop House. Rounds leverage Farcaster reactions, such as likes, to weigh the retroactive distribution of capital to those who have contributed to Nouns in the past. Proposers tag the round bot in a cast with their request for funding, and other users can like these proposal casts to signal a ‘vote’ for funding them. At the end of the round, the aggregate capital in the round is distributed to all the proposals, pro rata by eligible likes on each cast.
This means Farcaster users now have direct influence over the flow of capital (without ever leaving their feed!), and can collectively act to influence that flow to those who have made the biggest impact. It’s a fascinating example of how communities can allocate funding within their network, directly in the place where the network communication occurs.
Fabric
Fabric’s Hypersub is an onchain subscription protocol, enabling users to subscribe to creators via time-weighted NFT mints. This form of patronage is one use case (which we’ll discuss later), but Hybersub is also already being used to allow for transacting on services as well. 0xDesigner is running a design services business on Hypersub, with 3 subscriptions for NFT owners who can then request design work from 0xDesigner himself by minting time on Hypersub.
It’s an interesting iteration on top of the “productized agency” model that has recently become popular in the design community, because it makes these productized services more liquid too. If Stripe subscriptions were an iteration on the “get on calls and request invoices” model, then one-click NFT mints are yet another iteration on top of Stripe.
Further, tokenizing the rights to services enables interesting mechanisms with transferability. As an example: after Jonny’s initial subscription to 0xDesigner wrapped up, he lent the NFT to Brian - this allowed Brian to then mint more time and subscribe to 0xDesigner. Hypersub NFTs, when used in this way, tokenize the rights to services, representing the option value of being able to hire 0xDesigner if you own the NFT. If Jonny wanted, he could sell this option value to someone else, or keep it just to have the option to hire back 0xDesigner at a later time.
Ultimately, we’re seeing the ways that people provide services and work become more streamlined across both discovery and payments. This is a positive for all parties in the marketplace - the people providing services and the people seeking them.
Media Markets
The concept of media markets may be a bit more native to crypto, as prior it was much less possible to own internet-native media. We can use the term media here pretty broadly, and are mostly referring to the general space of onchain creator monetization - whether that's digital art, music, content, community, etc. How can creators earn more from the value they create?
About a year ago today, the answer to this question was relatively limited. You basically just dropped NFTs - either you minted a 1/1 and sold it at auction or as a direct listing, or you minted an edition (fixed or open) and similarly sold it at some price. Anything more complex required custom smart contract development or advanced tools that were only used by a minority of creators.
Today, the way that creators monetize onchain looks much different. In addition to these singular drops where collectors pay an artist for tokenized media, media monetization has started to resemble a new shape, that of networks: where value flows to all sorts of different people, all the time, throughout a graph.
Let’s look at some examples of what I mean here.
Protocol Rewards
Protocol rewards, invented by Zora, aren’t native to Farcaster but they do resemble a new mechanism design that brings more social behavior into the otherwise purely economic act of minting. By building infrastructure to reward people for sharing, creating, and kicking off mints, the act of minting has become inherently more social. Instead of mint fees going directly to the platform, they now go to many different entities - the creator, the platform, the referrer(s), and more. The introduction of other small features like native splits and commenting on Zora specifically, further entrenches minting as a fundamentally new social and economic behavior, as opposed to just a way to Collect Art™.
Since Zora launched protocol rewards last fall, the concept has been widely adopted across many different products, such as Paragraph, Mirror, and Daylight, as a new way for incentivizing transaction sharing within a social graph or community. Some form of referral rewards are a norm now amongst many creator monetization protocols.
Channel Passes
Channels on Farcaster have enabled creators to build organic spaces around their communities and networks. They’ve enabled greater distribution for these creators alongside a mechanism for guiding the type of content in those spaces via moderation and host tooling.
Channel passes are a new Warpcast feature that allow channel hosts to gate the ability to post in channels to people who pay a set amount of Warps. The feature is very new to Farcaster (I’m not sure if they’re even live for users at time of writing), but it represents a new form of monetization for channel creators and hosts. By requiring Warps payments to post in a channel, hosts get two benefits: they can earn Warps from creating a quality channel that has demand for posting, and they can also reduce spam and identify true fans - the people who care enough to post in a channel that they’ll spend money to do so.
Hypersub
Hypersub has been used for labor transactions as mentioned above, but its primary use case has been community patronage of creators. Farcaster-native creators like 0xen, Sumit, and Ted have all launched Hypersubs to connect with their true fans. The time weighted subscription allows creators to know the current subscribers at any given moment, and reward those subscribers accordingly - whether that’s something like 0xen’s airdrops to subscribers, or CLUB TED token-gated experiences. Hypersub also implements its own version of protocol rewards, for both people who refer mints and who subscribe early to different transactions. These are even more mechanisms that allow for value flow not just to the creator, but throughout the creator’s broader community.
As a subscriber to Salon 0xen, I’ve paid money to 0xen, but also become eligible for airdrops, discounted NFT mints, and earned my own subscriber rewards - the value of all of which probably exceeds the amount I paid.
Party Rooms enable community builders to leverage cryptonative mechanisms for capital formation within their communities. Users can purchase NFTs on a bonding curve that give them voting rights over a treasury generated from those trading fees. These collectors then get access to a token-gated chat, where they can coordinate on how to distribute that capital. The creators of these onchain communities in Party rooms get their own fees as well, a new mechanism for their own value capture. On Farcaster, creating a Party Room is as simple as tagging a bot and some friends, tightly integrating the social feed with an onchain governance mechanism.
This addresses both capital formation and allocation friction within crypto, providing a potentially recurring and sustainable way for communities to form over time and direct the flow of money to their own interests. I participated in an NYC Party Room recently, and all we did was use the funds to buy Tompkins Square bagels for the group - but it was a simple example of how this sort of infrastructure can fund new sorts of community development, whether that’s online, onchain, or IRL. I’m also currently experimenting with a Nouns party called Adjectives, which can function as a new capital allocation mechanism for funding Nounish builders and projects.
Community Currencies
"With any local economy, there will be community currencies" - androidsixeteen
While most of the above transactions occur in native assets like ETH or USDC, Farcaster’s integration with social and economic behavior has also allowed for the emergence of new community currencies - specifically for retroactively funding “micromedia” aka posts.
$DEGEN
$DEGEN is a community created token where users can tip each other $DEGEN under good posts - a micro reward for creating good content on Farcaster. They’ve also created new community behaviors, such as Tip O’ The Hat, where users all converge to tip their daily allowance to a single individual that day.
These capital flows within a community represent a new form of internet-native behavior that hasn’t really ever existed. It’d be incredibly weird if you went up to a friend and handed them a dollar after they said a funny joke - but with $DEGEN, it’s completely natural because it’s a native norm of the community: distributed mechanisms for funding at-scale micromedia.
Warps
The tipping function of Warpcast’s native currency, Warps, follows a similar pattern to that of $DEGEN - it resembles a new Farcaster-native action that rewards good content creation on the network.
Beyond that, Warps also accelerate much of the liquidity and efficiency of markets mentioned above; for example, the ability for users to seamlessly Mint with Warps accelerates how users can behave as minters and patrons of their peers’ creative work.
So What?
Many Farcaster users are probably already aware of the tools and products mentioned above. Of course these tools are great, but what’s more novel in my opinion, is how they all fit together under a common theme - freeing the circulation of capital throughout a network.
Another point of interest is that while all these separate tools exist, they’re also composable with one another. Funds from Fabric or Zora mints can go towards Party treasuries - or, Parties can deploy their own Zora and Fabric mints! Warps and $DEGEN can be used to pay for mints on NFTs via Farcaster, or fund bounties on Bountycaster. Many different types of onchain protocols can implement rewards to incentivize positive-sum social activity on their protocol. These are examples of how these different social and economic tools can be collaborative and positive-sum, making these economies more robust in the long term.
Creators and builders should consider how their monetization strategies can evolve alongside these new primitives. We’re in the middle of a Cambrian explosion of new value accrual mechanisms, and creators and builders who seek to earn with crypto should lean towards being more experimental, not less.
When capital moves more efficiently within communities towards those who contribute to them, it strengthens those communities and enables participants to create more value in addition to capturing more as well.
Hope you enjoyed six's post - have a great rest of the week!
- YB
